A Michigan-based private equity firm has started a strategy to buy U.S. plastics processors and has already purchased three companies.
Northville, Mich.-based Orchard Creek Capital LLC started with Classic Die Inc. in Grand Rapids, Mich., and in the past two months has added Tool Technology Corp. in Inman, S.C., and Advantage Plastics of New York Inc. in Winter Haven, Fla.
Orchard Creek is headed by President Jon Carlson, who has a background in financial management in manufacturing, including 10 years at Ford Motor Co.
"We believe that the plastics industry has a number of attractive elements. The industry has been steadily growing over many years, as the technology supporting plastics provides an expanding set of technical capabilities," Carlson said.
"The plastics industry also can produce components at a considerably lower cost than alternative materials. And finally, the plastics industry is fairly fragmented, with a lot of founders reaching retirement age and looking for partners like Orchard Creek to help them transition into retirement," he said.
While at Ford, Carlson worked in the components group, which eventually was spun off as Visteon Corp.
"Naturally I had a fair amount of exposure to plastics at Visteon," he said. "Because we are focused on plastics now, our whole team has made a point of learning as much as possible about this fascinating industry. We are all excited that we chose to focus on plastics, and we are very excited about the prospects in plastics that we see on the horizon."
Orchard Creek is pursuing investments in smaller businesses, with annual sales ranging from $4 million to $20 million, and Carlson said he will have a "longer investment horizon" than other private equity firms. He said Orchard Creek wants to buy "well-established plastics companies with a defensible market position and a proven track record."
Orchard Creek made its first plastics acquisition, Classic Die, in 2018. The 40-year-old Grand Rapids-based injection molder offers mold design, prototyping and construction.
Fast forward to 2020 and Orchard Creek has closed on two more deals. In August, Orchard Creek bought Tool Technology, a custom injection molder. The firm has a 20,000-square-foot plant in Inman that runs 24 hours a day, five days a week. It has 32 full-time employees and 24 injection presses ranging from 40-1,450 tons of clamping force.
Core end markets include outdoor recreation and consumer products.
Tool Technology founder Don Reid has an equity share in the company and is staying on as president of the operation.
"The most important element in most circumstances for us is local leadership, and Don Reid is an excellent example of a local partner for us," Carlson said. "The company is also in a desirable new region for us — we really like the business climate in South Carolina — the customer base there is strong and getting stronger."
MBS Advisors of Florence, Mass., advised Tool Technology in the transaction. Terms were not disclosed.
In October, Orchard Creek closed on the purchase of Advantage Plastics, a Winter Haven-based thermoformer. The company ranked No. 158 in the most recent Plastics News survey of North American thermoformers, with estimated sales of $4.3 million.
Advantage Plastics has 14 employees and focuses primarily on industrial thermoforming.
"Like Tool Technology, at Advantage we were able to partner with the founder of a company with a strong track record of profitable growth. John Salva is a seasoned veteran of the thermoforming business, and he has been able to use his experience at a number of processors to build a very strong operation," Carlson said.
"And again like Tool Technology, Advantage Plastics is based in a strong market with a number of rapidly growing local customers."
Carlson called Orchard Creek an operationally oriented investment firm.
"We work hard to strike a good balance between 'hands on' and 'hands off,'" Carlson said. "We support the local general mangers with efficient back-office processes and seasoned guidance on navigating the dynamic plastics industry."
While his firm leans toward a decentralized business model, he said Orchard Creek's plastics plans could follow a "buy and build" venture that the firm previously followed in the electronics industry. That led to MCE Technologies, a $75 million company based in Ann Arbor, Mich., that eventually merged with Aeroflex Inc., a publicly traded strategic partner.
"Our plans in plastic are similar. We hope to build a major plastics processor that provides remarkable reliability to its customers," Carlson said.
He added that COVID-19 made closing Tool Technology and Advantage Plastic deals more complicated.
"It was a process where everyone was learning on the fly, but the teams were able to get the work done with a lot of conference calls," he said.
"Our bank insisted on a plant tour to approve the acquisition loans. Those tours were done with roving Zoom calls, where the sellers took the bank on a detailed walkaround of the facilities using a mobile phone. The process worked surprisingly well," he said.
"Something I specifically remember is how the founder's pride in the operation they had built came through so strongly as they walked the teams around their operations. It was great to see."